The number of high deductible insurance plans has also driven the more cost-conscious consumers to defer elective surgery and to choose alternative sites for care. This diminishes the hospital equipment needs, but creates new opportunities for device manufacturers to offer equipment to non-traditional sites such as surgery centers, urgent care facilities and others. Often, these providers are cash-strapped and find rental to be an attractive alternative to purchasing.
No Standard Terms in Rentals
Rental equipment doesn’t come with “standard terms.” There are so many different types of medical equipment, it’s hard to have standard terms that apply to each item. For example, due to the cost of installation, renting an MRI or CAT Scan machine doesn’t make sense for either party. Size of transaction does not necessarily determine if rental is an option for its use. Rather, it can be determined to be a good rental product investment if it is likely to be upgraded or replaced in a short period of time, or if there are supply issues. Rental can be used for any item where an institution such as Med One will assume the risk of ownership. But it is easy to see that the large range of rental needs makes it hard to standardize terms and procedures.
Underwriting Risks
Some people wonder if there is an underwriting risk for rental servicers. The risk seems to be minimal because the ability to collect equipment at any given time serves as a strong incentive for the account to pay its bills. It seems that rental customers generally pay their bills from 30 to 90 days and that they pay consistently with the exception being bankruptcy. This has allowed Med One to rent out equipment with as much confidence as we lease equipment, especially because we maintain technology that has a useful life and high demand.
With everything considered, will this rental trend continue to grow? I have a mixed answer. On one hand, hospitals are going to need to supplement capital investments to meet the fluctuating patient flow, acquire new technology, and to standardize complex care sites while continuing to conserve cash. As Med One’s CFO Jeff Easton said, “No CFO or CEO in their right mind would ever choose rental as a permanent way to acquire equipment. Every facility would prefer to own their equipment and not have any form of debt. Rentals are only justified for temporary needs or other extenuating circumstances.” Yes, they would, but they also do not want to lose patients and associated revenues, and will therefore approve rental costs to meet the needs of patient care.
On the other hand, the number of healthcare providers in the United States has remained steady. Mergers, acquisitions and alternate site centers have not appeared to increase the number of healthcare providers. Rather it has redefined where patient services are provided. This is why I believe the market is not growing, but that medical equipment rentals may continue to increase.